Melissa Magana v. Zara USA, Inc. ( 2021 )

NOT FOR PUBLICATION FILED
UNITED STATES COURT OF APPEALS MAR 31 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
MELISSA MAGANA, No. 20-55027
Plaintiff-Appellant, D.C. No. 8:18-cv-02249-DOC-ADS
v.
ZARA USA, INC. MEMORANDUM*
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
David O. Carter, District Judge, Presiding
Argued and Submitted February 2, 2021
Pasadena, California
Before: GOULD, LEE, and VANDYKE, Circuit Judges.
Memorandum joined by Judge GOULD and Judge LEE;
Dissent by Judge VANDYKE
Melissa Magana appeals the dismissal of her employment class action suit
against Zara. The district court held that Magana’s lawsuit — which sought Private
Attorney General Act (PAGA) penalties based on a suitable seating violation under
the California Labor Code — was barred by claim preclusion because Magana was
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
an unnamed class member in an earlier wage-and-hour settlement with Zara. We
have jurisdiction under 28 U.S.C. § 1291, and we review de novo the district court’s
dismissal on claim preclusion grounds. We reverse and remand.
1. As an initial matter, we agree with the district court’s conclusion that
the class-wide settlement agreement in the earlier wage-and-hour action (called the
“Paz” lawsuit) does not contractually bar Magana’s current claim. On appeal,
Magana asks us to take this conclusion one step further and hold that the settlement
agreement affirmatively allows her suitable seating claim to proceed on purely
contractual grounds. Magana correctly notes that parties are allowed to contract
around the preclusive effect of a settlement agreement. Specifically, if “a settlement
agreement expressly excludes certain claims, the resulting dismissal does not
preclude further litigation on the excluded claim.” Kim v. Reins Int’l Cal., Inc., 459
P.3d 1123, 1134 (Cal. 2020) (citation omitted). Here, though, the settlement
agreement does not expressly exclude the seating claim. So, we reject Magana’s
argument that the settlement agreement contractually allows her seating claim to go
forward.
On the other hand, we also reject Zara’s argument that the settlement
agreement precludes Magana’s seating claim on purely contractual grounds. Zara,
for its part, points to the settlement agreement’s definition of “PAGA Settlement
Amount” as constituting “full satisfaction of all claims for PAGA civil penalties
2
under the California Labor Code, Wage Orders, regulations, and/or other provisions
of law alleged to have been violated with respect to the Settlement Class.” It is true
that both the earlier action and the current action sought PAGA penalties on the basis
of various Labor Code violations. In light of that, the phrase “all claims for PAGA
civil penalties” could ostensibly be read to literally encompass all claims for PAGA
penalties, including Magana’s seating claim.
We hold, however, that this broad definitional language must be read in the
context of the more specific limiting language in the settlement agreement’s release
provision itself. See Wilder v. Wilder, 291 P.2d 79, 83 (Cal. Ct. App. 1955) (“The
general rule is that if a general and specific provision are inconsistent, the specific
provision will control.”). Specifically, the settlement agreement contains a “Release
of Claims by Participating Class Members.” That paragraph makes clear that the
settlement release applies only to “claims for relief based on the facts alleged in [the
complaint].” 1 What is more, the release provision goes on to specifically refer to
1
The dissent reads this limiting language as descriptive or prefatory language,
but the text does not have the typical hallmark of prefatory language. See Black's
Law Dictionary 1385 (9th ed. 2009) (defining the term “recital,” or “whereas
clause,” to mean “[a] preliminary statement in a contract ... explaining the reasons
for entering into it or the background of the transaction, or showing the existence of
particular facts”); Sabetian v. Exxon Mobil Corp., 272 Cal. Rptr. 3d 144, 155 (Ct.
App. 2020), as modified (Nov. 25, 2020) (“The law has long distinguished between
a ‘covenant’ which creates legal rights and obligations, and a ‘mere recital’ which a
party inserts for his or her own reasons into a contractual instrument. Recitals are
given limited effect even as between the parties.” (citations omitted)). Here, the
sentence containing this limiting language (“Upon the Effective Date, for and in
3
claims for “damages, penalties, interest and other amounts recoverable under … the
PAGA as to the facts alleged in the [complaint].” We therefore read the settlement
agreement to plainly limit the release of PAGA claims to only those claims based on
the facts alleged in the complaint. Here, the wage-and-hour complaint asserts claims
for unpaid overtime, unpaid minimum wages, noncompliant wage statements, the
nonprovision of meal and rest breaks, and the untimely payment of wages in
violation of the California Labor Code, plus a derivative claim for PAGA penalties.
The complaint does not allege any facts related to seating. The settlement
agreement’s release provision thus does not encompass the suitable seating claim.
2. We disagree with the district court’s conclusion that res judicata bars
Magana’s suitable seating claim. Under California law, claim preclusion applies if
a second suit involves “(1) the same cause of action (2) between the same parties (3)
consideration of the mutual promises . . .”) clearly sets out an enforceable promise,
not a mere factual recitation. See Golden W. Baseball Co. v. City of Anaheim, 31
Cal. Rptr. 2d 378, 396 (Ct. App. 1994) (explaining that clause starting with the words
“It is understood and agreed” was “not a recital, despite its label. It is not a mere
recitation of facts, but contains the operative language.”).
We also do not believe that the ninth category listed in Paragraph 37 (which
refers to “damages, penalties, interest, and other amounts recoverable”) makes
category seven (“violation of PAGA”) redundant merely because the former also
refers to PAGA. The ninth category also lists the FLSA, California Labor Code,
Unfair Competition Law, and Wage Orders, all of which are listed in categories one
to six in Paragraph 37. We construe the ninth category’s comprehensive language
as a catch-all provision to reinforce that Zara would not be liable for any damages,
penalties, interest, or any other amounts for claims based on the facts alleged in the
complaint.
4
after a final judgment on the merits in the first suit.” Kim, 459 P.3d at 1134 (citation
omitted). The only disputed element in this case is whether the Magana lawsuit
involves the same cause of action as the earlier Paz lawsuit.2 “To determine whether
two proceedings involve identical causes of action for purposes of claim preclusion,
California courts have consistently applied the ‘primary rights’ theory.” Boeken v.
Philip Morris USA, Inc., 230 P.3d 342, 348 (Cal. 2010) (internal quotations and
citation omitted). The “determinative factor” in the primary rights analysis is the
“harm suffered.” Id. “[I]f two actions involve the same injury to the plaintiff and
the same wrong by the defendant then the same primary right is at stake even if in
the second suit the plaintiff pleads different theories of recovery, seeks different
forms of relief and/or adds new facts supporting recovery.” Eichman v. Fotomat
Corp., 197 Cal. Rptr. 612, 614 (Ct. App. 1983).
With that framework in mind, the relevant question is whether the claims at
issue in the earlier lawsuit — unpaid overtime, unpaid minimum wages,
noncompliant wage statements, untimely payment of wages, and the nonprovision
of meal-and-rest breaks — implicate the same primary right as Magana’s seating
claim (California requires employers to provide seating if the job reasonably permits
2
Magana argues for the first time in her reply brief that she never in fact
received notice of the Paz settlement or compensation, so that argument is waived.
See United States v. Kama, 394 F.3d 1236, 1238 (9th Cir. 2005) (“Generally, an
issue is waived when the appellant does not specifically and distinctly argue the issue
in his or her opening brief.”).
5
it). We hold that the answer is no. All of the earlier claims were meant to redress
the nonpayment of wages or were otherwise related to wages, while the suitable
seating claim is entirely unrelated to wages. So, different primary rights are at issue.
We recognize that the resolution of the primary-rights question ultimately
boils down to a question of framing: does the suitable seating claim narrowly
implicate the right to seating, or does it implicate a broader right to a minimum
guaranteed standard of labor? If we conceptualize the relevant primary rights too
narrowly, we risk opening the door to endless successive Labor Code lawsuits
against the same employer, which would undermine the goals of the claim preclusion
doctrine. But if we conceptualize the relevant primary rights too broadly, we risk
barring claims that really have nothing to do with prior actions and deserve to be
litigated on their own. Based on existing caselaw, we think the right answer in this
instance lies somewhere in the middle.
Specifically, we think it makes sense to at least draw a distinction between
wage-related claims and non-wage claims for purposes of the primary rights
analysis. In a similar case involving the application of claim preclusion to Labor
Code claims, the California Court of Appeal considered whether an earlier action for
failure to pay overtime and split-shift wages barred a later action for PAGA penalties
premised on violations related to overtime, noncompliant wage statements, failure
to provide meal and rest periods, indemnification for business expenses, and the
6
untimely payment of wages. Villacres v. ABM Indus. Inc., 117 Cal. Rptr. 3d 398(Ct. App. 2010). In concluding that claim preclusion applied, the court described all
of the claims at issue as “related to … the payment of wages and penalties.” Id. at
416.
At the same time, Villacres declined to adopt either “a categorical rule that
employees must assert all known Labor Code violations and PAGA penalties in a
single suit, at least where the violations are related to wages,” or the opposite rule
that “each Labor Code violation and each corresponding PAGA penalty constitute a
separate primary right.” Villacres, 117 Cal. Rptr. 3d at 413. Thus, we read Villacres
to say that at least a subset of wage-related claims under the Labor Code — including
overtime, noncompliant wage statements, untimely payment of wages, and meal-
and-rest period claims — involve the same primary right.
Turning to the claims in this case, we do not need to go so far as to definitively
pinpoint the primary right at issue in Magana’s suitable seating claim. (Is it the right
to seating or is it a broader right related to health and safety in the workplace?) But
under Villacres, it is at least safe to say that Magana’s suitable seating claim does
not relate to the payment of wages. In contrast, the earlier claims for unpaid
overtime, unpaid minimum wages, untimely payment of wages, and noncompliant
wage statements do relate to the payment of wages. To be fair, identifying the
7
primary right at issue in the meal-and-rest break claims is a closer call,3 but
ultimately, we think those claims should also be treated as wage-related claims for
purposes of the primary-rights analysis.
For one, that appears to be how the Villacres court itself treated the claims.
See Villacres, 117 Cal. Rptr. 3d at 416. And elsewhere, the California Supreme
Court has confirmed that the remedy for a meal-and-rest break violation can be
characterized as the payment of wages. See Murphy v. Kenneth Cole Prods., Inc.,
155 P.3d 284, 297 (Cal. 2007) (characterizing “additional hour of pay” remedy for
meal-and-rest violations as “a premium wage intended to compensate employees”).
But see Naranjo v. Spectrum Sec. Servs., Inc., 253 Cal. Rptr. 3d 248, 270 (Ct. App.
2019) (holding that meal-and-rest premiums are not wages for purposes of wage-
related derivative claims under the Labor Code), cert. granted, 455 P.3d 704 (Cal.
2020).
3
In Kirby, the California Supreme Court in a case involving a fee-shifting
statute noted that meal-and-rest claims are not actions for the nonpayment of wages,
but that rather “the legal violation is nonprovision of meal or rest breaks.” Kirby v.
Immoos Fire Prot., Inc., 274 P.3d 1160, 1168 (Cal. 2012). The court also explained
that the meal-and-rest provisions are “primarily concerned with ensuring the health
and welfare of employees by requiring that employers provide meal and rest
periods.” Id. at 1167. On the surface, then, there seems to be some tension between
Kirby and Villacres. Ultimately, though, we do not think that Kirby is applicable
here because it did not address primary-rights analysis. Rather, that case ultimately
turned on a statutory interpretation question of whether meal-and-rest claims
counted as an “action brought for the nonpayment of wages” as that phrase appeared
in a fee-shifting statute. Kirby, 274 P.3d at 1168. That is not necessarily the same
inquiry as identifying the “harm suffered” for primary-rights purposes.
8
In sum, the harm at the center of all of the earlier claims involves the
nonpayment of wages for the time value of labor. In contrast, the harm of a suitable
seating violation is much more abstract and cannot be redressed via the payment of
wages. Thus, we hold that Magana’s seating claim does not implicate the same
primary right as any of the wage-related claims resolved in the earlier class-wide
settlement, so we reverse the dismissal on claim preclusion grounds.
REVERSED AND REMANDED.
9
FILED
Magana v. Zara USA, No. 20-55027 MAR 31 2021
MOLLY C. DWYER, CLERK
VANDYKE, Circuit Judge, dissenting. U.S. COURT OF APPEALS
The majority reverses the district court, concluding that (1) the Paz settlement
“does not contractually bar Magana’s … claim,” and (2) her claim is not barred by
California res judicata law. While this is far from an obvious case, I disagree with
both conclusions, and therefore respectfully dissent. Because holding in Zara’s
favor on either ground would be sufficient to affirm the district court, I address only
the contractual ground.
Paragraph 24 of the Paz settlement agreement broadly settled “all claims for
PAGA civil penalties” on behalf of the class members (which includes Magana). As
the majority acknowledges, that paragraph’s facially expansive language “could
ostensibly be read to literally encompass all claims for PAGA penalties, including
Magana’s seating claim.” I would go farther and say that should be the presumptive
reading: “all claims for PAGA civil penalties” is pretty clear. But the majority opts
instead to read it more narrowly by construing the agreement’s Paragraph 37 as
limiting Paragraph 24’s release provision.
Paragraph 37 states that “the Participating Class Members do hereby fully,
finally and forever release and discharge [Zara] from all the following claims for
relief based on the facts alleged in the Action:”—followed by nine enumerated
descriptions of specific claims released by the class. Pointing to this prefatory
1
language, the majority explains that Paragraph 37 “makes clear that the settlement
release applies only to ‘claims for relief based on the facts alleged in [the
complaint]’” (alterations in original).
But, first, the mere fact that a release of claims is “based on” certain facts does
not necessarily strictly limit the released claims to only those claims with identical
facts. “Based on” could, as the majority appears to read it, mean something like
“depend on,” 1 which, if true, would support the majority’s narrow reading. But it
could also mean something like “founded on,”2 which would only descriptively
denote that the following list of released claims was predicated on the facts from the
class members’ complaint, but not strictly “limited to” those facts. 3 Put simply, I
don’t think the “based on the facts alleged” phrase from Paragraph 37 “makes clear”
that Paragraph 24’s expansive “full release of all claims for PAGA civil penalties”
language must be read narrowly. Paragraph 24’s language is both broad and clear.
Paragraph 37’s “based on the facts alleged” language is ambiguous. I would not use
an ambiguous phrase to limit a clear one.
1
See Based On, THESAURUS.COM, https://www.thesaurus.com/browse/based%20on
(last visited Mar. 24, 2021).
2
Id.
3
See Base, BLACK’S LAW DICTIONARY 185 (11th Ed. 2019) (defining the verb
“base,” inter alia, as to “serve as a foundation for” or “[t]o use (something) as the
thing from which something else is developed”).
2
Second, Paragraph 37’s prefatory phrase doesn’t purport to define the claims
released in any event. It refers to “all the following claims” released (emphasis
added), which, as one might expect, are described and defined in the enumerated
sections that “follow[].” And it is here, I believe, that the majority’s otherwise
reasonable (but not the only reasonable) interpretation especially breaks down.
Some of the nine categories of released claims enumerated by the parties are
specifically limited “as to the facts alleged in the Action” (emphasis added).4 But
others are not. The seventh category of enumerated claims released by the Paz class
members, for example, is simply any “violation of PAGA”—full stop. Notably, this
facially broad category of claims does not include any language limiting the released
“violation of PAGA” claims to only “the facts alleged in the Action.” The ninth
(and final) enumerated category of released claims does, in contrast, release “all
damages, penalties, interest and other amounts recoverable under … the PAGA as
4
Note that here the parties used “as to the facts alleged in the Action” to qualify
some of the released claims, rather than “based on the facts alleged in the Action”
(emphases added). “As to” more clearly conveys an attempt to limit than “based
on.” That, and the fact that the parties used different language so closely together,
suggests that the parties meant “based on the facts” to mean something different
from “as to the facts.” See Alameda Cnty. Flood Control & Water Conservation
Dist. v. Dep’t of Water Res., 152 Cal. Rptr. 3d 845, 862 (Cal. Ct. App. 2013)
(applying the following statutory interpretation rule in interpreting a contract:
“[w]here the same word or phrase might have been used in the same connection in
different portions of a statute but a different word or phrase having different meaning
is used instead, the construction employing that different meaning is to be favored”
(citation omitted)).
3
to the facts alleged in the Action” (emphasis added). This latter provision in the
ninth category is the language from Paragraph 37 relied on by the majority for its
narrow reading of the otherwise broad release language in Paragraph 24.
But as just described, in addition to the Paragraph 37 language relied on by
the majority, that paragraph has other language broadly releasing all claims for any
“violation of PAGA” without specifically limiting that category to “the facts alleged
in the action.” Under the majority’s reading of Paragraph 37, the seventh
enumerated category of claims is doubly superfluous. First, the majority reads
superfluity into the contract because the majority (incorrectly, in my view) reads the
prefatory language at the beginning of Paragraph 37—“based on the facts alleged in
the Action”—as necessarily limiting each of the nine enumerated categories of
released claims that follow. This reading might be plausible in other contexts. But
because the phrase “as to the facts alleged in the Action” also appears four times in
some—but not all—of the descriptions of the enumerated claims themselves, the
majority’s reading necessarily renders all those later uses of the phrase redundant
and superfluous. See Ins. Co. of State of Pa. v. Associated Int’l Ins. Co., 922 F.2d
516, 522 (9th Cir. 1990) (noting that, under California law, “[t]he whole of a contract
is to be taken together, so as to give effect to every part, if reasonably practicable,
each clause helping to interpret the other” (citation omitted)); Shine v. Williams-
Sonoma, Inc., 233 Cal. Rptr. 3d 676, 684 (Cal. Ct. App. 2018) (“[T]he language of
4
a settlement agreement must be viewed in its entirety, and, if possible, every
provision must be given effect.”); Brandwein v. Butler, 161 Cal. Rptr. 3d 728, 747
(Cal. Ct. App. 2013) (“[W]hen interpreting a contract, we strive to interpret the
parties’ agreement to give effect to all of a contract’s terms, and to avoid
interpretations that render any portion superfluous, void or inexplicable.”).
I think the better construction of Paragraph 37 is to read the prefatory release
language—“all the following claims for relief based on the facts alleged in the
Action”—not as limiting language, but simply as introductory or descriptive
language acknowledging that the facts of the Paz suit are the basis for the Paz Class
Members releasing the nine categories of claims that follow. That gives Paragraph
37’s later uses (and, as importantly, non-uses) of the phrase “as to the facts alleged
in the Action” independent meaning and purpose.
This construction also avoids a second redundancy. Under the majority’s
reading of Paragraph 37, claim category seven—which releases claims for any
“violation of PAGA”—is entirely superfluous. That is because claim category nine
specifically releases claims for “all damages, penalties, interests, and other amounts
recoverable under … the PAGA as to the facts alleged in the Action” (emphasis
added). Under my reading of Paragraph 37, category seven has meaning (it releases
class member’s PAGA claims more broadly than just those directly related “to the
5
facts alleged in the Action”). Under the majority’s construction, category seven is
entirely subsumed within category nine and thus unnecessary. 5
For the above reasons, I conclude that Magana, as part of the class covered by
the Paz settlement agreement, has already released the claims she is attempting to
assert in this action. I would accordingly affirm, without needing to reach the
difficult question of whether her claims are precluded under California res judicata
law.
5
The majority argues that there is no redundancy because, under its reading, the
ninth enumerated category is a catch-all provision. I agree that “catch-all provision”
is a good label for it. But that doesn’t fix the problem that, under the majority’s
construction, the parties expressly and uniquely limited the contract’s catch-all
release provision “as to the facts alleged in the Action” when, per the majority, all
the enumerated categories—including the catch-all provision—were already so
limited. Under the majority’s construction, there is simply no way to escape a
glaring superfluity problem. Nor does it address the problem that, once you interpret
category seven’s “violation of PAGA” language as only covering any “violation of
PAGA” rooted in “the facts alleged in the Action,” there is no “violation of PAGA”
that category seven would cover that isn’t already covered by category nine.
6